Geopolitical Concerns May Weigh On Wall Street

The major U.S. index futures are pointing to a lower opening on Tuesday, with geopolitical concerns likely to weigh on the markets following news North Korea conducted a major nuclear test on Sunday.

President Donald Trump condemned the nuclear test in posts on Twitter, saying North Korea’s words and actions continue to be very hostile and dangerous to the U.S.

Trump said the U.S. is considering stopping all trade with any country doing business with North Korea in response to the test.

Traders are also likely to keep an eye on any developments in Washington, as lawmakers return following the August recess.

Lawmakers are under pressure to raise the debt ceiling and pass a government spending bill before deadlines at the end of the month.

Stocks moved modestly higher during trading on Friday despite the release of disappointing monthly jobs data. Buying interest was somewhat subdued, although the tech-heavy Nasdaq still reached another new record closing high.

The major averages ended the day in positive territory but off their best levels. The Dow edged up 39.46 points or 0.2 percent to 21,987.56, the Nasdaq inched up 6.67 points or 0.1 percent to 6,435.33 and the S&P 500 ticked up 4.90 points or 0.2 percent to 2,476.55.

For the week, the Dow advanced by 0.8 percent, while the Nasdaq surged up by 2.5 percent and the S&P 500 jumped by 1.4 percent.

The modest strength on Wall Street came even though the Labor Department released a report showing much weaker than expected job growth in the month of August.

The Labor Department said non-farm payroll employment climbed by 156,000 jobs in August compared to expectations for an increase of about 180,000 jobs.

The report also said the job growth in June and July was downwardly revised to 210,000 jobs and 189,000 jobs, respectively, reflecting a net downward revision of 41,000 jobs.

Reflecting the weaker than expected job growth, the unemployment rate inched up to 4.4 percent in August from 4.3 percent in July. Economists had expected the unemployment rate to remain unchanged.

Traders may have been comforted by analyst comments suggesting the weak job growth is not likely the beginning of a trend.

“With the survey evidence still strong and third-quarter economic growth on course for another decent gain after the second, there is no reason to believe that the modest drop-off in employment growth is the start of a more serious downturn,” said Paul Ashworth, chief U.S. economist at Capital Economics.

He added, “Nevertheless, since the September figures could be affected by Hurricane Harvey, the Fed might be waiting until the October data are released in early November before confirming that the labor market remains in good health.”

A separate report from the Institute for Supply Management also showed activity in the manufacturing sector expanded faster than estimated in the month of August.

The ISM said its purchasing managers index climbed to 58.8 in August from 56.3 in July, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected the index to inch up to 56.5.

The bigger than expected increase lifted the purchasing managers index to its highest level since reaching 59.1 in April of 2011.

Steel stocks showed a substantial move to the upside on the day, driving the NYSE Arca Steel Index up by 2.1 percent. With the gain, the index reached its best closing level in well over five months.

The rally by steel stocks may have reflected optimism about the outlook for demand following a recent strength of upbeat manufacturing data from around the globe.

Considerable strength was also visible among energy stocks, which moved higher amid a modest increase by the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index jumped by 1.5 percent, while the NYSE Arca Natural Gas Index and the NYSE Arca Oil & Gas Index climbed by 1.2 percent and 1 percent, respectively.

Airline, biotechnology and banking stocks also saw some strength on the day, although buying interest was somewhat subdued.

Commodity, Currency Markets

Crude oil futures are climbing $0.78 to $48.07 a barrel after inching up $0.06 to $47.29 a barrel last Friday. Meanwhile, after jumping $8.20 to $1,330.40 an ounce in the previous session, gold futures are rising $5.50 to $1,335.90 an ounce.

On the currency front, the U.S. dollar is trading at 109.24 yen compared to the 109.72 yen it fetched at the close of New York trading last Friday. Against the euro, the dollar is valued $1.1898 compared to Friday’s $1.1896.

Asia

Asian stocks ended mixed on Tuesday, with Japanese markets succumbing to selling pressure on reports the government is drafting a plan to bring thousands of South Korea-based nationals to safety in the event of a military conflict with North Korea.

South Korea’s Asia Business Daily, citing an unidentified source, said that North Korea had been moving what appeared to be an intercontinental ballistic missile towards its west coast.

China’s Shanghai Composite Index edged up 5.55 points or 0.2 percent to 3,385.13, extending gains for a third straight session after a private business survey showed activity in China’s services sector expanded at a faster pace in August.

The Caixin services PMI rose to 52.7 from 51.5 in July as new business orders picked up. Hong Kong’s Hang Seng Index inched up 1.09 points or less than a tenth of a percent to 27,741.35.

Japanese shares moved lower as the yen extended gains and Fast Retailing reported a 3.4 percent drop in August same-store sales at Uniqlo Japan. The Nikkei 225 Index fell 122.44 points or 0.6 percent to 19,385.81, while the broader Topix index closed 0.8 percent lower at 1,590.71.

Fast Retailing dropped 0.7 percent after reporting a drop in same-store sales. Bitcoin-related stocks such as Infoteria and Remixpoint lost 10-11 percent after China banned and deemed illegal the practice of raising funds through launches of token-based digital currencies.

Activity in Japan’s services sector continued to expand in August, although at a slower pace, the latest survey from Nikkei showed with a PMI score of 51.6, down from 52.0 in July.

Australian shares recovered from early losses to end marginally higher, led by mining and energy stocks after the release of encouraging data on exports, service sector activity and consumer confidence.

Meanwhile, the Reserve Bank kept its official cash rate on hold at a record low for the 13th month in a row, citing signs of a housing market slowdown.

Commonwealth Bank shrugged off early losses to close 0.2 percent higher. A global litigation funder said it would back a shareholder class action against the country’s biggest bank over alleged breaches of anti-money laundering and counter-terrorism funding laws.

Europe

European stocks have also turned mixed over the course of the session after inching higher earlier in the day. While the German DAX Index is up by 0.5 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both down by 0.1 percent.

German carmaker Volkswagen has rallied on reports that it has put the 1.5 billion-euro ($1.8 billion) sale of Ducati motorcycles temporarily on hold.

Merck KGaA has soared after announcing that it is preparing strategic options for its consumer health business, including a potential full or partial sale of the business as well as strategic partnerships.

TalkTalk Telecom has also risen in London after the Financial Times said the company is exploring an exit from its mobile operations.

Aveva Group shares have jumped after the engineering software firm agreed to a takeover offer from France’s Schneider Electric.

Meanwhile, Reckitt Benckiser Group shares have fallen after the company confirmed that four of its senior executives are leaving.

In economic news, data from IHS Markit showed the Eurozone private sector logged steady growth in August. The composite output index came in at 55.7 in August, matching July’s reading but down slightly from the flash estimate of 55.8.

Shares of Rockwell Collins (COL) may also move to the upside after the defense contractor agreed to be acquired by United Technologies (UTX) for $23 billion.

On the other hand, shares of Cellectis (CLLS) are moving sharply lower in pre-market trading after the biopharmaceutical company said a clinical hold was placed on both UCART123 ongoing Phase 1 studies.

Real estate investment trust AvalonBay (AVB) may also move to the downside after Goldman Sachs downgraded its rating on the company’s stock to Neutral from Buy.